According to the Central Bank of the Republic of Turkey Report dated February 8, 2024, it is reported that consumer inflation stood at 64.8% at the end of 2023. This is in line with the midpoint of the range forecasted in the previous Inflation Report. With inflation following the projected trajectory in January, the overall outlook has been maintained.
According to the report, the main trend in inflation experienced a slowdown starting from September but saw a temporary increase in January. The impact of macroeconomic shocks mid-year has diminished, and the exchange rate has remained relatively stable. Commodity prices decreased, particularly in the energy group, and global supply conditions remained generally stable in the fourth quarter.
The tightening monetary policies have had a positive effect on financial conditions and domestic demand. Inflation expectations decreased, and there has been some improvement in pricing behaviors.
However, according to the forecasts provided in the report, inflation is expected to trend downward shortly. It is projected that inflation will decrease to 36% by the end of 2024 and further to 14% by the end of 2025.
Looking at economic activities, there was a slight growth in the third quarter of 2023, but the effects of monetary tightening have begun to balance domestic demand. However, achieving the full balance as forecasted may take a quarter longer.
It was noted that the increase in global risk appetite and the support of Turkey's financial indicators by the tightening monetary policies have led to a decrease in risk premium indicators in developing countries, and a decrease in Turkey's CDS premium.
The Central Bank is determined to maintain a tight stance in monetary policy and evaluates that this stance will support the balance in domestic demand and improvement in the current account balance. It is expected that the tight stance in monetary policy will slow down monthly inflation and improve inflation expectations.
Finally, it is stated that the increase in demand for the Turkish lira supports monetary transmission, and the increase in deposit interest rates and the share of Turkish lira deposits further support this process.
